Abstract

There are investors, who out of their concern regarding adverse changes in our environment, concerns for justice, and because of their opposition to the arms race, decline to purchase the securities of enterprises that engage in what are termed socially irresponsible activities. Such activities usually include, but are not necessarily limited to, the production of armaments, alcohol and tobacco; engaging in activities that degrade the environment; and engaging in activities that treat people unfairly. ;Declining to invest in the securities of enterprises that act in a socially irresponsible way not only is a form of social protest, but also can have the effect of diminishing the demand for a company's securities. Diminishment of demand may have an adverse financial impact on a company. This may be a factor in influencing companies to change and to become more socially responsible. ;The question arises: Is an investor who declines to purchase the securities of enterprises deemed to be socially irresponsible at a disadvantage versus investors who have no such restrictions? In other words, has the investment performance of socially responsible investors suffered in comparison to those who are not so responsible? ;To answer the above, a study has been done which encompasses all of the socially responsible mutual funds in the United States. The study covers the ten years through 1990. The investment performance of socially responsible mutual funds has been compared to indices including indices of mutual funds which are not socially responsible. The study shows no clear pattern of either superior or inferior investment rates of return for socially responsible mutual funds as compared to the various indices. The conclusion that can be drawn is that long term investment rates of return are not influenced by use or lack of use of social criteria as part of the investment selection process